Oil Trades Near One-Month High on Budget, Terror Arrests

By Grant Smith -
Dec 27, 2012

Brent crude traded near the highest
level in one month as U.S. lawmakers prepared to resume budget
talks and the United Arab Emirates said it arrested members of a
terror cell that was planning attacks on oil-exporting nations.

Futures were little changed in London after rising the most
in five weeks yesterday. President Barack Obama and legislators
returned to Washington for talks aimed at averting more than
$600 billion in tax gains and spending cuts that start Jan. 1.
The U.A.E. coordinated with Saudi Arabian officials to arrest
members of the terror group who had equipment needed for their
attacks, according to the official WAM news agency.

“The arrests in the U.A.E. appear to have had a big impact
with lower liquidity in the oil market,” said Michael Poulsen,
an analyst at Global Risk Management in Middelfart, Denmark, who
predicts Brent will average $112 a barrel in the first quarter.
“Fundamentals look pretty balanced.”

Brent for February settlement fell 39 cents to $110.68 a
barrel on the London-based ICE Futures Europe exchange at 1:03
p.m. local time. The volume was 46 percent less than the 100-day
average. Prices yesterday gained $2.27, or 2.1 percent, to
settle at $111.07, the highest close since Nov. 30.

West Texas Intermediate for February delivery was unchanged
at $90.98 a barrel in electronic trading on the New York
Mercantile Exchange. The volume traded for all contracts was 39
percent below the 100-day average. Futures advanced $2.37 to
$90.98 yesterday. The European benchmark crude was at a premium
of $19.67 to WTI.

Mideast Tension

The U.S. benchmark has dropped 7.9 percent in 2012 as the
U.S. shale boom deepened the glut at Cushing, Oklahoma,
America’s largest oil-storage hub and the delivery point for
Nymex futures. That has left WTI at an average discount of
$17.46 a barrel to Brent this year, compared with a premium of
about 7 cents in the five years through 2010. Brent, the
benchmark grade for more than half the world’s crude, has
climbed 3.4 percent this year.

“I think there can be some resolution and we can avoid the
worst-case scenario” in the budget talks, said Ken Hasegawa, an
energy trading manager at Newedge Group in Tokyo. “We don’t see
an issue for the terrorist news, but it was said to move prices
on possible Middle East tension. It’s easier for players to move
prices up and down in a thin market.”

A failure to reach an agreement on the budget plan might
push the U.S., the world’s biggest crude consumer, into
recession for the first half of 2013, the nonpartisan
Congressional Budget Office has said.

Debt Ceiling

The U.S. government will hit its statutory debt ceiling on
Dec. 31, Treasury Secretary Timothy F. Geithner said in a letter
to congressional leaders. To avert a default, the Treasury will
create about $200 billion in headroom under the limit, which
would normally last about two months. The letter adds urgency to
the talks between Republicans and Obama, who has asked that
raising the debt ceiling be part of a deficit-reduction plan.

Oil may decline in New York as technical indicators show
prices have probably risen too quickly for further gains to be
sustained. Crude’s 30-day stochastic oscillators climbed above
70 yesterday for the first time since September, signaling
futures are overbought, according to data compiled by Bloomberg.
The front-month contract also settled higher than the upper
Bollinger Band, around $90.70 a barrel today, an indicator that
has halted advances twice this month.

Heating oil futures were little changed at $3.0522 a gallon
in New York after increasing 1.6 percent yesterday, the biggest
gain in more than five weeks. A winter storm may have dropped as
much as 3 inches (7.6 centimeters) of snow and ice on New York
City yesterday. A weather advisory was issued as the system
neared the area, said Tim Morrin, a National Weather Service
meteorologist in Upton, New York. The storm has dumped heavy
snow across the Great Plains and Midwest and brought high winds
and tornadoes across the South.

Crude held on to yesterday’s gains because “it’s got a lot
to do with a little bit of weather,” said Jonathan Barratt,
chief executive officer of Barratt’s Bulletin, a commodity
newsletter in Sydney.